UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ________________ to ________________ Commission File Number 0-16914 THE E. W. SCRIPPS COMPANY (Exact name of registrant as specified in its charter) Ohio 31-1223339 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 312 Walnut Street Cincinnati, Ohio 45202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (513) 977-3000 Not Applicable (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of April 30, 2001 there were 60,101,803 of the Registrant's Class A Common Shares outstanding and 19,096,913 of the Registrant's Common Voting Shares outstanding.
INDEX TO THE E. W. SCRIPPS COMPANY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001 Item No. Page PART I - FINANCIAL INFORMATION 1 Financial Statements 3 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 3 3 Quantitative and Qualitative Disclosures About Market Risk 3 PART II - OTHER INFORMATION 1 Legal Proceedings 3 2 Changes in Securities 3 3 Defaults Upon Senior Securities 3 4 Submission of Matters to a Vote of Security Holders 4 5 Other Information 4 6 Exhibits and Reports on Form 8-K 4
PART I ITEM 1. FINANCIAL STATEMENTS The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information at page F-1 of this Form 10-Q. PART II ITEM 1. LEGAL PROCEEDINGS The Company is involved in litigation arising in the ordinary course of business, such as defamation actions and various governmental and administrative proceedings relating to renewal of broadcast licenses, none of which is expected to result in material loss. ITEM 2. CHANGES IN SECURITIES There were no changes in the rights of security holders during the quarter for which this report is filed. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities during the quarter for which this report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter for which this report is filed. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibits The information required by this item is filed as part of this Form 10-Q. See Index to Exhibits at page E-1 of this Form 10-Q. Reports on Form 8-K No reports on Form 8-K were filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE E. W. SCRIPPS COMPANY Dated: May 10, 2001 BY: D. J. Castellini D. J. Castellini Senior Vice President and Chief Financial Officer
THE E. W. SCRIPPS COMPANY Index to Financial Information Item Page Consolidated Balance Sheets F-2 Consolidated Statements of Income F-4 Consolidated Statements of Cash Flows F-5 Consolidated Statements of Comprehensive Income and Stockholders' Equity F-6 Notes to Consolidated Financial Statements F-7 Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements F-15 Results of Operations F-15 Newspapers F-18 Scripps Networks F-19 Broadcast Television F-20 Liquidity and Capital Resources F-21 Market Risk F-22
<TABLE> CONSOLIDATED BALANCE SHEETS <CAPTION> ( in thousands ) As of March 31, December 31, March 31, 2001 2000 2000 ( Unaudited ) ( Unaudited ) <S> <C> <C> <C> ASSETS Current Assets: Cash and cash equivalents $ 13,840 $ 14,112 $ 19,670 Accounts and notes receivable (less allowances -$12,794, $13,891, $10,850) 233,845 289,583 274,812 Program rights and production costs 110,442 115,513 87,699 Network distribution fees 20,892 21,105 22,220 Inventories 10,106 17,802 17,745 Deferred income taxes 30,251 30,421 27,583 Miscellaneous 34,593 35,449 27,738 Total current assets 453,969 523,985 477,467 Investments 395,011 177,922 275,530 Property, Plant and Equipment 383,254 502,041 484,509 Goodwill and Other Intangible Assets 1,212,182 1,209,132 1,222,746 Other Assets: Program rights and production costs (less current portion) 106,228 96,881 78,679 Network distribution fees (less current portion) 39,487 40,571 41,353 Miscellaneous 20,743 22,334 33,348 Total other assets 166,458 159,786 153,380 TOTAL ASSETS $ 2,610,874 $ 2,572,866 $ 2,613,632 See notes to consolidated financial statements. </TABLE>
<TABLE> CONSOLIDATED BALANCE SHEETS <CAPTION> ( in thousands, except share data ) As of March 31, December 31, March 31, 2001 2000 2000 ( Unaudited ) ( Unaudited ) <S> <C> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 237,742 $ 212,828 $ 274,126 Accounts payable 110,234 114,275 91,206 Customer deposits and unearned revenue 32,976 37,214 35,964 Accrued liabilities: Employee compensation and benefits 37,766 49,089 40,681 Network distribution fees 51,220 48,257 40,877 Miscellaneous 62,521 71,313 87,506 Total current liabilities 532,459 532,976 570,360 Deferred Income Taxes 138,117 129,932 167,084 Long-Term Debt (less current portion) 508,411 501,781 501,842 Other Long-Term Obligations and Minority Interests (less current portion) 123,704 130,367 140,141 Stockholders' Equity: Preferred stock, $.01 par - authorized: 25,000,000 shares; none outstanding Common stock, $.01 par: Class A - authorized: 120,000,000 shares; issued and outstanding: 59,987,153; 59,641,828; and 59,033,621 shares 600 596 590 Voting - authorized: 30,000,000 shares; issued and outstanding: 19,096,913; 19,096,913; and 19,216,913 shares 191 191 192 Total 791 787 782 Additional paid-in capital 170,415 157,394 139,713 Retained earnings 1,147,723 1,093,138 996,262 Unrealized gains (losses) on securities available for sale (779) 31,877 101,573 Foreign currency translation adjustment (221) 361 946 Unvested restricted stock awards (9,746) (5,747) (5,071) Total stockholders' equity 1,308,183 1,277,810 1,234,205 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,610,874 $ 2,572,866 $ 2,613,632 See notes to consolidated financial statements. </TABLE>
<TABLE> CONSOLIDATED STATEMENTS OF INCOME ( UNAUDITED ) <CAPTION> ( in thousands, except per share data ) Three months ended March 31, 2001 2000 <S> <C> <C> Operating Revenues: Advertising $ 272,773 $ 317,699 Circulation 36,182 38,349 Affiliate fees 19,757 14,630 Licensing 18,000 16,251 Joint operating agency distributions 9,057 10,883 Other 11,610 13,047 Total operating revenues 367,379 410,859 Operating Expenses: Employee compensation and benefits 118,755 127,292 Newsprint and ink 26,241 37,192 Amortization of purchased programming 32,095 28,038 Other operating expenses 104,274 117,272 Depreciation 14,357 17,074 Amortization of intangible assets 10,408 9,734 Total operating expenses 306,130 336,602 Operating Income 61,249 74,257 Other Credits (Charges): Interest expense (12,461) (12,636) Investment results, net of expenses 58,785 (9,062) Net gains on divested operations 6,269 Miscellaneous, net 353 946 Net other credits (charges) 46,677 (14,483) Income Before Taxes and Minority Interests 107,926 59,774 Provision for Income Taxes 40,642 25,114 Income Before Minority Interests 67,284 34,660 Minority Interests 846 1,056 Net Income $ 66,438 $ 33,604 Net Income per Share of Common Stock: Basic $.84 $.43 Diluted .83 .43 See notes to consolidated financial statements. </TABLE>
<TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS ( UNAUDITED ) <CAPTION> ( in thousands ) Three months ended March 31, 2001 2000 <S> <C> <C> Cash Flows from Operating Activities: Net income $ 66,438 $ 33,604 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization 24,765 26,808 Net investment results and loss (gain) on divestitures (59,789) 1,347 Deferred income taxes 25,992 (613) Dividends greater than share of earnings of equity method investments 11,004 561 Minority interests in income of subsidiary companies 846 1,056 Network distribution fee amortization greater (less) than payments 3,711 3,182 Program cost amortization greater (less) than payments (11,344) (8,950) Other changes in certain working capital accounts, net 5,195 (4,643) Miscellaneous, net 8,597 4,788 Net operating activities 75,415 57,140 Cash Flows from Investing Activities: Additions to property, plant and equipment (14,716) (15,014) Purchase of subsidiary companies and long-term investments (20,348) (52,093) Payment for interest in Denver JOA (62,520) Sale of subsidiary companies and long-term investments 145 24,660 Miscellaneous, net 210 (630) Net investing activities (97,229) (43,077) Cash Flows from Financing Activities: Increase in long-term debt 31,552 7,900 Payments on long-term debt (17) (1,394) Repurchase Class A Common shares (1,988) Dividends paid (11,853) (10,951) Dividends paid to minority interests (392) (392) Miscellaneous, net (primarily employee stock compensation) 4,240 (12) Net financing activities 21,542 (4,849) Increase (Decrease) in Cash and Cash Equivalents (272) 9,214 Cash and Cash Equivalents: Beginning of year 14,112 10,456 End of period $ 13,840 $ 19,670 Supplemental Cash Flow Disclosures: Interest paid, excluding amounts capitalized $ 9,217 $ 9,236 Income taxes paid 10,909 8,948 Denver newspaper assets contributed to JOA 162,227 Destin newspaper traded for Fort Pierce newspaper (see Note 2) 3,857 See notes to consolidated financial statements. </TABLE>
<TABLE> CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND STOCKHOLDERS' EQUITY ( UNAUDITED ) <CAPTION> ( in thousands, except share data ) Accumulated Unvested Additional Other Restricted Total Common Paid-in Retained Comprehensive Stock Stockholders' Stock Capital Earnings Income Awards Equity <S> <C> <C> <C> <C> <C> <C> Balances at December 31, 1999 $ 781 $ 136,731 $ 973,609 $ 58,271 $ (4,940)$ 1,164,452 Comprehensive income: Net income 33,604 33,604 Unrealized gains, net of tax of $24,278 45,080 45,080 Less: reclassification adjustment for gains in income, net of tax of ($433) (805) (805) Increase in unrealized gains on securities 44,275 44,275 Foreign currency translation adjustments (27) (27) Total 33,604 44,248 77,852 Dividends: declared and paid - $.14 per share (10,951) (10,951) Compensation plans, net: 133,251 shares issued; 25,079 shares repurchased 1 1,982 (131) 1,852 Tax benefits of compensation plans 1,000 1,000 Balances at March 31, 2000 $ 782 $ 139,713 $ 996,262 $ 102,519 $ (5,071)$ 1,234,205 Balances at December 31, 2000 $ 787 $ 157,394 $1,093,138 $ 32,238 $ (5,747)$ 1,277,810 Comprehensive income: Net income 66,438 66,438 Unrealized gains, net of tax of $5,442 10,210 10,210 Less: reclassification adjustment for gains in income, net of tax of ($23,081) (42,866) (42,866) Increase (decrease) in unrealized gains on securities (32,656) (32,656) Foreign currency translation adjustments (582) (582) Total 66,438 (33,238) 33,200 Dividends: declared and paid - $.15 per share (11,853) (11,853) Repurchase 35,200 Class A Common Shares (1,988) (1,988) Compensation plans, net: 482,294 shares issued; 101,769 shares repurchased 4 9,356 (3,999) 5,361 Tax benefits of compensation plans 5,653 5,653 Balances at March 31, 2001 $ 791 $ 170,415 $1,147,723 $ (1,000)$ (9,746)$ 1,308,183 See notes to consolidated financial statements. </TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) _______________________________________________________________ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation - The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The information disclosed in the notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, has not changed materially unless otherwise disclosed herein. Financial information as of December 31, 2000, included in these financial statements has been derived from the audited consolidated financial statements included in that report. In management's opinion all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the interim periods have been made. Results of operations are not necessarily indicative of the results that may be expected for future interim periods or for the full year. Joint Operating Agencies - The application for a joint operating agency ("JOA") between the Company's Denver Rocky Mountain News ("RMN") and MediaNews Group Inc.'s Denver Post was approved by the U.S. Department of Justice. The JOA commenced operations on January 22, 2001. The Denver Publishing Company, a wholly owned subsidiary of the Company, holds a 50% interest in the JOA. Included in JOA distributions in the Consolidated Statements of Income is the Company's share of the operating profit (loss) of the Denver JOA from January 22, 2001. The Company also includes in its operating expenses its editorial costs associated with the RMN. The Company's financial statements no longer include the advertising and other revenue of the RMN, the costs to produce, distribute and market the newspaper, or related depreciation. The Company's residual interest in the net assets of the JOA is included in Investments in the Consolidated Balance Sheets. Derivative Instruments and Hedging Activities - The Company adopted Financial Accounting Standard No. 133 - Accounting for Derivative Instruments and Hedging Activities effective January 1, 2001. Adoption of the new standard had no effect on the Company's financial statements. Net Income Per Share - The following table presents additional information about basic and diluted weighted-average shares outstanding: <TABLE> <CAPTION> ( in thousands ) Three months ended March 31, 2001 2000 <S> <C> <C> Basic weighted-average shares outstanding 78,719 77,977 Effect of dilutive securities: Unvested restricted stock held by employees 146 116 Stock options held by employees 999 731 Diluted weighted-average shares outstanding 79,864 78,824 </TABLE> Reclassifications - For comparative purposes, certain 2000 amounts have been reclassified to conform to 2001 classifications.
2. ACQUISITIONS AND DIVESTITURES Acquisitions 2001 - The Company acquired an additional 3.5% interest in The Television Food Network. 2000 - In the first quarter the Company acquired the daily newspaper in Fort Pierce, Florida, in exchange for its newspaper in Destin, Florida, and cash; and television station KMCI in Lawrence, Kansas. In later periods the Company acquired the daily newspaper in Henderson, Kentucky, and the weekly newspaper in Marco Island, Florida. The following table presents additional information about the acquisitions: <TABLE> <CAPTION> ( in thousands ) Three months ended March 31, 2001 2000 <S> <C> <C> Goodwill and other intangible assets acquired $ 14,429 $ 44,381 Other assets acquired 2,646 Total 14,429 47,027 Fair value of Destin newspaper (3,857) Liabilities assumed (38) Cash paid $ 14,429 $ 43,132 </TABLE> The acquisitions have been accounted for as purchases. The allocations of the purchase prices are based on preliminary appraised values of the assets acquired and liabilities assumed, and are therefore subject to change. Operating results are included in the Consolidated Statements of Income from the dates of acquisitions, with the exception of KMCI whose results were included while the Company operated the station under a contract with the former owner. Pro forma results are not presented because the combined results of operations would not be significantly different than the reported amounts. Divestitures 2000 - In the first quarter the Company sold its independent telephone directories in Memphis, Tennessee; Kansas City, Missouri; and North Palm Beach, Florida, and traded its Destin, Florida, newspaper and cash for the daily newspaper in Fort Pierce, Florida. The sales and trade resulted in net gains of $6,269,000, $3,800,000 after-tax ($.05 per share). In the third quarter the Company sold its remaining independent telephone directories in Louisiana. Included in the consolidated financial statements are the following results of divested operations (excluding gains on sales): <TABLE> <CAPTION> ( in thousands ) Three months ended March 31, 2000 <S> <C> Operating revenues $ 6,802 Operating income (loss) (111) </TABLE>
3. UNUSUAL CREDITS AND CHARGES 2001 - Included in net investment results are i) recognized net investment gains and ii) adjustments to accrued incentive compensation related to changes in the net gains (realized and estimated unrealized) on the Scripps Ventures I portfolio. Included in recognized net investment gains are i) a gain of $65,900,000 on the exchange of the Company's investment in Time Warner for America Online, which acquired Time Warner, ii) $17,900,000 in write-downs for several investments, and iii) an $11,500,000 reduction in accrued incentive compensation, to zero at March 31, 2001, in conjunction with the $68,400,000 decrease in the total realized and estimated unrealized net gain on Scripps Ventures I's portfolio, to $8,500,000. Net investment results in the first quarter increased net income $38,500,000 ($.48 per share). 2000 - In addition to the gains on divested operations described in Note 2, net investment results include i) recognized net investment losses totaling $2,000,000 and ii) a $7,100,000 increase in accrued incentive compensation, to $14,100,000 at March 31, 2000, in conjunction with the $47,000,000 increase in the total realized and estimated unrealized net gain on Scripps Ventures I's portfolio, to $94,000,000. The combined effect of the above items was to reduce first quarter 2000 net income $2,100,000 ($.02 per share).
4. LONG-TERM DEBT Long-term debt consisted of the following: <TABLE> ( in thousands ) As of March 31, December 31, March 31, 2001 2000 2000 <S> <C> <C> <C> Variable rate credit facilities, including commercial paper $ 537,701 $ 512,788 $ 573,590 $100 million, 6.625% note, due in 2007 99,905 99,901 99,890 $100 million, 6.375% note, due in 2002 99,968 99,964 99,949 Other notes 8,579 1,956 2,539 Total long-term debt 746,153 714,609 775,968 Current portion of long-term debt 237,742 212,828 274,126 Long-term debt (less current portion) $ 508,411 $ 501,781 $ 501,842 </TABLE> The Company has a Competitive Advance and Revolving Credit Facility Agreement, which permits aggregate borrowings up to $700,000,000 (the "Variable Rate Credit Facilities"). The Variable Rate Credit Facilities are comprised of two unsecured lines, one limited to $400,000,000 principal amount maturing in 2001, and the other limited to $300,000,000 principal amount maturing in 2002. Borrowings under the Variable Rate Credit Facilities are available on a committed revolving credit basis at the Company's choice of three short-term rates or through an auction procedure at the time of each borrowing. The Variable Rate Credit Facilities are also used by the Company in whole or in part, in lieu of direct borrowings, as credit support for its commercial paper. The weighted-average interest rates on the Variable Rate Credit Facilities were 5.4% at March 31, 2001, 6.6% at December 31, 2000, and 6.1% at March 31, 2000.
5. INVESTMENTS Investments consisted of the following: <TABLE> <CAPTION> ( in thousands, except share data ) As of March 31, December 31, March 31, 2001 2000 2000 <S> <C> <C> <C> Securities available for sale (at market value): AOL Time Warner common stock (2,017,000 shares) $ 80,975 Time Warner common stock (1,344,000 shares) $ 70,239 $ 134,455 Centra Software (1,792,500 common shares) 11,651 6,946 37,532 garden.com Inc. (2,414,000 common shares and 276,000 warrants) 21,098 iVillage Inc. (41,000 common shares at March 31, 2001, and December 31, 2000, 270,000 common shares at March 31, 2000) 20 40 5,699 Other 4,114 3,929 7,686 Total available-for-sale securities 96,760 81,154 206,470 Denver newspaper JOA 216,268 FOX SportSouth and other joint ventures 8,703 9,502 7,210 Other equity investments 73,280 87,266 61,850 Total investments $ 395,011 $ 177,922 $ 275,530 Unrealized gains (losses) on securities available for sale $ (1,252)$ 49,047 $ 156,332 </TABLE> Investments available for sale represent securities in publicly traded companies that are recorded at fair value. Fair value is based upon the closing price of the security on the reporting date. The Company exchanged its investment in Time Warner for America Online, which acquired Time Warner, in the first quarter of 2001. See Note 3. The values of several of the Company's investments in available- for-sale securities declined below historical cost and were written down in 2000. During the third quarter of 2000 the Company received $5,000,000 upon delivery of 229,000 iVillage shares under the provisions of a zero-cost collar. Included in other equity investments are securities that do not trade in public markets, so they do not have readily determinable fair values. However, based upon the price paid by other investors for similar securities in subsequent rounds of financing, if any, and management's assessment when circumstances indicate fair value is less than the price paid in the most recent round, the total estimated value of these investments was $81,000,000 on March 31, 2001, $163,000,000 on December 31, 2000, and $106,000,000 on March 31, 2000. There can be no assurance as to the amounts the Company would receive if these securities were sold. The Company's Scripps Ventures Funds I and II invest in new businesses focusing primarily on new media technology. Scripps Ventures I invested $54,000,000. The managers' compensation includes a share of the portfolio's cumulative net gain through December 2002 if a specified minimum return is achieved. Based on the portfolio's realized and estimated unrealized net gains of $8,500,000 through March 31, 2001, the incentive compensation accrual was zero. The incentive compensation accrual will be subject to change as the net gain changes through December 2002. Scripps Ventures II is authorized to invest up to $100,000,000, of which $40,700,000 was invested as of March 31, 2001. The managers have a minority equity interest in the return on Scripps Ventures II's investments if a specified minimum return is achieved.
6. SEGMENT INFORMATION The Company's reportable segments are strategic businesses that offer different products and services. The Company primarily evaluates the operating performance of its segments based on earnings before interest, income taxes, depreciation and amortization ("EBITDA"), excluding divested operating units, unusual items and all credits and charges classified as non- operating in the Consolidated Statements of Income. No single customer provides more than 10% of the Company's revenue. International revenues are primarily derived from licensing comic characters and HGTV and Food Network programming in international markets. Licensing of comic characters in Japan provides more than 50% of the Company's international revenues, which are less than $50,000,000 annually.
Financial information for the Company's business segments is as follows: <TABLE> <CAPTION> ( in thousands ) Three months ended March 31, 2001 2000 <S> <C> <C> OPERATING REVENUES Newspapers $ 189,548 $ 230,024 Scripps Networks 87,617 73,323 Broadcast Television 65,921 76,687 Licensing and other media 24,293 24,023 Total 367,379 404,057 Divested operating units 6,802 Per consolidated financial statements $ 367,379 $ 410,859 EBITDA Newspapers $ 54,223 $ 62,461 Scripps Networks 15,821 15,338 Broadcast Television 16,087 23,554 Licensing and other media 4,739 4,476 Corporate (4,856) (4,826) Total 86,014 101,003 Divested operating units 62 Per consolidated financial statements $ 86,014 $ 101,065 DEPRECIATION Newspapers $ 7,145 $ 10,001 Scripps Networks 1,885 1,857 Broadcast Television 4,916 4,684 Licensing and other media 194 191 Corporate 217 237 Total 14,357 16,970 Divested operating units 104 Per consolidated financial statements $ 14,357 $ 17,074 AMORTIZATION OF INTANGIBLE ASSETS Newspapers $ 6,272 $ 5,586 Scripps Networks 1,807 1,727 Broadcast Television 2,329 2,352 Total 10,408 9,665 Divested operating units 69 Per consolidated financial statements $ 10,408 $ 9,734 OPERATING INCOME Newspapers $ 40,806 $ 46,874 Scripps Networks 12,129 11,754 Broadcast Television 8,842 16,518 Licensing and other media 4,545 4,285 Corporate (5,073) (5,063) Total 61,249 74,368 Divested operating units (111) Per consolidated financial statements $ 61,249 $ 74,257 </TABLE>
<TABLE> <CAPTION> ( in thousands ) Three months ended March 31, 2001 2000 <S> <C> <C> PAYMENTS (GREATER) LESS THAN PROGRAM AMORTIZATION AND NETWORK DISTRIBUTION COSTS Scripps Networks $ (7,560) $ (5,424) Broadcast Television (73) (344) Total $ (7,633) $ (5,768) ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT Newspapers $ 10,388 $ 4,204 Scripps Networks 1,639 1,596 Broadcast Television 2,528 8,843 Licensing and other media 98 85 Corporate 63 221 Total 14,716 14,949 Divested operating units 65 Per consolidated financial statements $ 14,716 $ 15,014 BUSINESS ACQUISITIONS AND OTHER ADDITIONS TO LONG-LIVED ASSETS Newspapers $ 64,268 $ 32,001 Scripps Networks 18,551 577 Broadcast Television 14,605 Licensing and other media 306 Venture capital and other investments 4,211 8,650 Total $ 87,030 $ 56,139 ASSETS Newspapers $ 1,320,164 $ 1,241,479 Scripps Networks 550,590 470,298 Broadcast Television 482,956 498,172 Licensing and other media 26,514 30,067 Venture capital and other investments 171,784 269,536 Corporate 51,202 55,933 Total 2,603,210 2,565,485 Divested operating units 7,664 48,147 Total $ 2,610,874 $ 2,613,632 </TABLE> Other additions to long-lived assets include investments and network distribution fees. Corporate assets are primarily cash, cash equivalent and other short-term investments, and refundable and deferred income taxes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company operates in three reportable segments: Newspapers, Scripps Networks, and Broadcast Television. FORWARD-LOOKING STATEMENTS This discussion and the information contained in the notes to the consolidated financial statements contain certain forward-looking statements that are based on management's current expectations. Forward-looking statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from the expectations expressed in the forward-looking statements. Such risks, trends and uncertainties, which in most instances are beyond the Company's control, include changes in advertising demand and other economic conditions; consumers' taste; newsprint prices; program costs; labor relations; technological developments; competitive pressures; interest rates; regulatory rulings; and reliance on third-party vendors for various products and services. The words "believe," "expect," "anticipate," "estimate," "intend" and similar expressions identify forward-looking statements. All forward-looking statements, which are as of the date of this filing, should be evaluated with the understanding of their inherent uncertainty. RESULTS OF OPERATIONS Acquisitions and divestitures can affect the comparability of year-over-year reported results. Amounts included in the accompanying tables include the results of acquired operations from the dates of acquisition. The results of divested operating units are removed from the segment operating results and reported separately because management believes they impede analysis of the Company's ongoing operations. See Note 2 to the Consolidated Financial Statements on page F-8 regarding acquisitions and divestitures. The application for a JOA between the Company's Denver Rocky Mountain News ("RMN") and MediaNews Group Inc.'s Denver Post was approved by the U.S. Department of Justice. The JOA commenced operations on January 22, 2001. The Denver Publishing Company, a wholly owned subsidiary of the Company, holds a 50% interest in the JOA. Included in RMN revenue is the Company's share of the operating profit (loss) of the Denver JOA from January 22, 2001. The Company also includes in its operating expenses its editorial costs associated with the RMN. The Company's financial statements no longer include the advertising and other revenue of the RMN, the costs to produce, distribute and market the newspaper, nor related depreciation. To enhance comparability of year-over-year operating results, the Company is reporting the RMN separately. All per share disclosures included in management's discussion and analysis of financial condition and results of operations are on a diluted basis.
Consolidated results of operations were as follows: <TABLE> <CAPTION> ( in thousands, except per share data ) Year-to-Date 2001 Change 2000 <S> <C> <C> <C> Operating revenues: Newspapers $ 178,708 (0.1)%$ 178,800 Scripps Networks 87,617 19.5 % 73,323 Broadcast Television 65,921 (14.0)% 76,687 Licensing and other media 24,293 1.1 % 24,023 Total 356,539 1.1 % 352,833 Rocky Mountain News 10,840 51,224 Divested operating units 6,802 Total operating revenues $ 367,379 $ 410,859 Operating income: Newspapers $ 48,372 (14.3)%$ 56,476 Scripps Networks 12,129 3.2 % 11,754 Broadcast Television 8,842 (46.5)% 16,518 Licensing and other media 4,545 6.1 % 4,285 Corporate (5,073) (0.2)% (5,063) Total 68,815 (18.0)% 83,970 Rocky Mountain News (7,566) 21.2% (9,602) Divested operating units (111) Total operating income 61,249 (17.5)% 74,257 Interest expense (12,461) (12,636) Investment results, net of expenses 58,785 (9,062) Net gains on divested operations 6,269 Miscellaneous, net 353 946 Income taxes (40,642) (25,114) Minority interest (846) (1,056) Net income $ 66,438 97.7 %$ 33,604 Net income per share of common stock $.83 93.0 % $.43 Weighted-average shares outstanding 79,864 78,824 Reconciliations to net income from core operations: Reported net income $ 66,438 97.7 % $ 33,604 Add back / (deduct): Net investment results (38,524) 5,893 Net gains on divested operations (3,763) Net income from core operations $ 27,914 (21.9)%$ 35,734 Reported net income per share of common stock $.83 93.0 % $.43 Add back / (deduct): Net investment results (.48) .07 Net gains on divested operations (.05) Net income from core operations per share of common stock $.35 (22.2)% $.45 See Note 3 to the Consolidated Financial Statements on page F-9 regarding items excluded from core operations. </TABLE>
Other financial and statistical data, excluding divested operations, is as follows: <TABLE> <CAPTION> ( in thousands ) Year-to-Date 2001 Change 2000 <S> <C> <C> <C> Total advertising revenues $ 261,994 (0.9)%$ 264,445 Advertising revenues as a percentage of total revenues 73.5 % 74.9 % EBITDA: Newspapers $ 60,541 (11.6)%$ 68,459 Scripps Networks 15,821 3.1 % 15,338 Broadcast Television 16,087 (31.7)% 23,554 Licensing and other media 4,739 5.9 % 4,476 Corporate (4,856) (0.6)% (4,826) Total 92,332 (13.7)% 107,001 Denver Rocky Mountain News (6,318) (5.3)% (5,998) Total EBITDA $ 86,014 (14.8)%$ 101,003 Effective income tax rate for core operations 41.5 % 41.2 % Net cash provided by operating activities $ 75,415 $ 57,140 Capital expenditures (14,716) (14,949) Business acquisitions and other additions to long-lived assets (87,030) (56,139) Increase (decrease) in long-term debt 31,535 6,506 Dividends paid, including minority interests (12,245) (11,343) Purchase and retirement of common stock (1,988) </TABLE> Earnings before interest, income taxes, depreciation and amortization ("EBITDA") is included in the discussion of results of operations because: Management believes the year-over-year change in EBITDA, combined with information on historical and anticipated capital spending, is a more useful and reliable measure of year-over-year performance than the change in operating income. Banks and other lenders use EBITDA to determine the Company's borrowing capacity. Financial analysts and acquirors use EBITDA, combined with capital spending requirements, to value communications media companies. EBITDA should not, however, be construed as an alternative measure of the amount of the Company's income or cash flows from operating activities. Average borrowings under short-term credit facilities were $547 million in the first quarter of 2001 and $550 million in the first quarter of 2000. The weighted-average interest rate on such facilities in the first quarter was 6.0% in 2001 and 6.0% in 2000. The Company is currently rolling over short-term debt at an effective 90-day yield of 4.35%. The average balance of all interest bearing obligations in the first quarter was $785 million in 2001 and $800 million in 2000. Interest capitalized was $230,000 in 2001 and $10,000 in 2000. Operating results for each of the Company's reportable segments, excluding divested operating units and unusual items, are presented on the following pages.
NEWSPAPERS - RMN operating results are presented separately as a single line item to enhance comparability of year-over-year Newspaper operating results. Excluding divested operations, operating results were as follows: <TABLE> <CAPTION> ( in thousands ) Year-to-Date 2001 Change 2000 <S> <C> <C> <C> Operating revenues: Local $ 51,811 (1.2)%$ 52,460 Classified 50,397 (2.1)% 51,475 National 7,328 11.7 % 6,563 Preprint and other 20,664 2.7 % 20,128 Newspaper advertising 130,200 (0.3)% 130,626 Circulation 35,402 2.5 % 34,536 Joint operating agency distributions 9,876 (9.3)% 10,883 Other 3,230 17.2 % 2,755 Total operating revenues 178,708 (0.1)% 178,800 Expenses, excluding depreciation and amortization: Editorial and newspaper content 21,889 2.8 % 21,291 Newsprint and ink 22,390 15.1 % 19,448 Other press and production 17,126 7.9 % 15,874 Circulation and distribution 16,414 13.4 % 14,479 Other advertising, internet and printing 6,306 6.1 % 5,945 Advertising sales and marketing 16,357 4.8 % 15,612 General and administrative 16,915 (0.6)% 17,024 Total 117,397 7.0 % 109,673 EBITDA 61,311 (11.3)% 69,127 Share of pre-tax earnings of equity-method investments (770) (668) Total EBITDA 60,541 (11.6)% 68,459 Depreciation and amortization 12,169 1.6 % 11,983 Operating income, excluding the RMN 48,372 (14.3)% 56,476 RMN operating income (7,566) 21.2 % (9,602) Total operating income $ 40,806 (12.9)%$ 46,874 Other Financial and Statistical Data: Percent of operating revenues: EBITDA 33.9 % 38.3 % Operating income 27.1 % 31.6 % Capital expenditures $ 10,388 $ 4,204 Business acquisitions and other additions to long-lived assets 64,268 32,001 </TABLE> The demand for advertising was soft in most of the Company's markets in the first quarter of 2001. On a pro forma basis, assuming all acquisitions had been completed as of January 1, 2000, local advertising decreased 5.0% and classified advertising decreased 4.5%. Operating expenses, other than newsprint, increased less than 2% on the same pro forma basis. Newsprint and ink increased primarily due to a 17% increase in year-over-year newsprint prices.
SCRIPPS NETWORKS - Operating results were as follows: <TABLE> ( in thousands ) Year-to-Date 2001 Change 2000 <S> <C> <C> <C> Operating revenues: Advertising $ 66,599 15.9 %$ 57,475 Affiliate fees 19,757 35.0 % 14,630 Other 1,261 3.5 % 1,218 Total operating revenues 87,617 19.5 % 73,323 Operating expenses, excluding depreciation and amortization: Programming and production 24,061 20.6 % 19,958 Operations and distribution 9,597 12.7 % 8,516 Amortization of distribution fees 5,299 20.5 % 4,396 Sales and marketing 18,594 27.5 % 14,586 General and administrative 14,885 29.6 % 11,488 Total 72,436 22.9 % 58,944 EBITDA - consolidated networks 15,181 5.6 % 14,379 Share of pre-tax earnings of equity-method investments 640 959 Total EBITDA 15,821 3.1 % 15,338 Depreciation and amortization 3,692 3.0 % 3,584 Operating income $ 12,129 3.2 %$ 11,754 Other Financial and Statistical Data: Percent of operating revenues: EBITDA 18.1 % 20.9 % Operating income (loss) 13.8 % 16.0 % Payments for programming and network distribution fees less than (greater than) amounts recognized as expense $ (7,560) $ (5,424) Capital expenditures 1,639 1,596 Business acquisitions and other additions to long-lived assets 18,551 577 </TABLE> According to the Nielsen Homevideo Index, HGTV was distributed to 69.8 million homes in March 2001, up 9.3 million from March 2000 and up 2.7 million in the quarter. Food Network was distributed to 57.9 million homes in March 2001, up 11.5 million from March 2000 and up 3.5 million in the quarter. The Company launched DIY in the fourth quarter of 1999 and expects to launch Fine Living, its fourth network, in the fourth quarter of 2001. Start-up expenses associated with DIY and Fine Living reduced EBITDA in the first quarter by $5.4 million in 2001 and $2.0 million in 2000. Full year start-up expenses are expected to reduce EBITDA by $20 million to $25 million. The cash required by DIY and Fine Living will substantially exceed the reported operating losses in 2001. Excluding the start-up expenses of the new networks, EBITDA increased 22%.
BROADCAST TELEVISION - Operating results were as follows: <TABLE> <CAPTION> ( in thousands ) Year-to-Date 2001 Change 2000 <S> <C> <C> <C> Operating revenues: Local $ 38,953 (5.2)%$ 41,079 National 22,803 (24.1)% 30,052 Political 1,741 Other 4,165 9.2 % 3,815 Total operating revenues 65,921 (14.0)% 76,687 Operating expenses, excluding depreciation and amortization: Programming and station operations 34,771 (6.7)% 37,287 Sales and marketing 8,704 (12.0)% 9,891 General and administrative 6,359 6.8 % 5,955 Total 49,834 (6.2)% 53,133 EBITDA 16,087 (31.7)% 23,554 Depreciation and amortization 7,245 3.0 % 7,036 Operating income $ 8,842 (46.5)%$ 16,518 Other Financial and Statistical Data: Percent of operating revenues: EBITDA 24.4 % 30.7 % Operating income 13.4 % 21.5 % Capital expenditures $ 2,528 $ 8,843 Business acquisitions and other additions to long-lived assets 14,605 </TABLE> The demand for advertising was weak in most of the Company's markets in the first quarter. Year-over-year automobile advertising declined sharply in the quarter. Operating expenses, excluding depreciation and amortization, are expected to decrease 6% to 7% for the full year.
LIQUIDITY AND CAPITAL RESOURCES The Company's cash flow from operating activities is expected to substantially exceed the total of its capital expenditure requirements and cash dividends in 2001, as it has since 1992. The excess cash flow from existing businesses and the Company's substantial borrowing capacity have been used primarily to fund acquisitions, investments, and to develop new businesses. There are essentially no legal or other restrictions on the transfer of funds among the Company's business segments. Repurchase of a total of six million Class A Common shares was authorized by the Board of Directors in 1998. The balance remaining on this authorization is 2.1 million shares. The Company's Scripps Ventures Funds invest in new businesses focusing primarily on new media technology. See Note 5 to the Consolidated Financial Statements. The Board of Directors has authorized up to $150 million of such investments. At March 31, 2001, an additional $59 million remains to be invested under the authorization. Net debt (borrowings less cash equivalent and other short-term investments) increased $32 million in the first quarter, to $746 million at March 31, 2001.
MARKET RISK The Company's earnings and cash flow can be affected by, among other things, interest rate changes, foreign currency fluctuations (primarily in the exchange rate for the Japanese yen) and changes in the price of newsprint. The information disclosed in Market Risk in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, has not changed materially unless otherwise disclosed herein. The Company may use foreign currency forward and option contracts to hedge its cash flow exposures denominated in Japanese yen and forward contracts to reduce the risk of changes in the price of newsprint on anticipated newsprint purchases. The Company held no foreign currency or newsprint forward contracts in 2001 or 2000. The following table presents additional information about the Company's market-risk-sensitive financial instruments: <TABLE> <CAPTION> ( in thousands, except share data ) As of March 31, 2001 As of December 31, 2000 Cost Fair Cost Fair Basis Value Basis Value <S> <C> <C> <C> <C> Financial instruments subject to interest rate risk: Variable rate credit facilities, including $ 537,701 $ 537,701 $ 512,788 $ 512,788 commercial paper $100 million, 6.625% note, due in 2007 99,905 99,600 99,901 97,900 $100 million, 6.375% note, due in 2002 99,968 101,100 99,964 99,800 Other notes 8,579 7,499 1,956 812 Total long-term debt $ 746,153 $ 745,900 $ 714,609 $ 711,300 Financial instruments subject to market value risk: AOL Time Warner common stock (2,017,000 shares) $ 93,719 $ 80,975 Time Warner common stock (1,344,000 shares) $ 27,816 $ 70,239 Centra Software (1,792,500 common shares) 3,652 11,651 3,652 6,946 Other available-for-sale securities 641 4,134 639 3,969 Total investments in publicly-traded companies 98,012 96,760 32,107 81,154 Other equity investments 73,280 (a) 87,266 (a) (a) Included in other equity investments are securities that do not trade in public markets, so they do not have readily determinable fair values. However, based upon the price paid by other investors for similiar securities in subsequent rounds of financing, if any, and managements assessments when circumstances indicate fair value is less than the price paid in the most recent round, the total estimated value of these investments was $81,000,000 on March 31, 2001, and $163,000,000 on December 31, 2000. There can be no assurance as to the amounts the Company would receive if these securities were sold. </TABLE> The Company manages interest rate risk primarily by maintaining a mix of fixed-rate and variable-rate debt. The Company currently does not use interest rate swaps, forwards or other derivative financial instruments to manage its interest rate risk. See Note 4 to the Consolidated Financial Statements. The weighted-average interest rate on borrowings under the Variable Rate Credit Facilities was 5.4% at March 31, 2001, and 6.6% at December 31, 2000.
THE E. W. SCRIPPS COMPANY Index to Exhibits Exhibit No. Item Page 12 Ratio of Earnings to Fixed Charges E-2
<TABLE> RATIO OF EARNINGS TO FIXED CHARGES EXHIBIT 12 ( in thousands ) Three months ended March 31, 2001 2000 <S> <C> <C> EARNINGS AS DEFINED: Earnings from operations before income taxes after eliminating undistributed earnings of 20%- to 50%-owned affiliates $ 118,930 $ 60,335 Fixed charges excluding capitalized interest and preferred stock dividends of majority-owned subsidiary companies 13,833 14,447 Earnings as defined $ 132,763 $ 74,782 FIXED CHARGES AS DEFINED: Interest expense, including amortization of debt issue costs $ 12,461 $ 12,636 Interest capitalized 231 14 Portion of rental expense representative of the interest factor 1,372 1,811 Preferred stock dividends of majority-owned subsidiary companies 20 20 Fixed charges as defined $ 14,084 $ 14,481 RATIO OF EARNINGS TO FIXED CHARGES 9.43 5.16 </TABLE>